The bank said its pre-tax profit fell by almost 50% to £124m for the six months to the end of September, down from £238m a year earlier.

The slump is mainly caused by the cost of the compensation for the rising level of payment protection insurance (PPI) claims.

Nationwide has had to set aside a further £45m to compensate victims of loan insurance mis-selling, which means the total figure for compensating customers will now cost £173m.

However, that is a fraction of the costs incurred by the other big banks.

Barclays, for example, has had to set aside £2bn after mis-selling the product to its customers.

PPI policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost their job, but they were often sold to people who would not have been eligible to claim on the policies.

In addition to the PPI hit, a £193m impairment on commercial property also dragged Nationwide's figures down.

Chief executive, Graham Beale, said: "Losses on our commercial property loans have increased over the past 12 months and, in addition, we continue to see elevated levels of PPI claims."

Nationwide competes with the 'Big Four' high street banks - Lloyds, Royal Bank of Scotland (RBS), HSBC and Barclays - in the financial services sector.

It has confirmed it is "potentially interested" in buying the 316 branches of RBS that are up for sale as it looks to expand into business lending.

Virgin Money and JC Flowers are also reportedly in the frame to buy the RBS branches.